Exchange-traded funds (ETFs) are investment baskets that trade like stocks on exchanges. They offer several advantages, including diversification тАУ you spread your investment across multiple assets, reducing risk. Also, they’re typically liquid, meaning you can easily buy and sell them on the exchange.
With a US ETF, you gain a stake in the US stock market, a powerhouse known for innovation and long-term growth. This diversification can help hedge against fluctuations in the Indian market and potentially boost your portfolio’s returns. Read along to know more!
What are US ETFs?
US Exchange Traded Funds (ETFs) are investment vehicles that trade on US stock exchanges, offering investors a slice of the American market. These funds track specific indices, sectors, or asset classes, providing diversified exposure to US stocks, bonds, commodities, or other securities.
Unlike mutual funds, ETFs can be purchased and sold throughout the trading day at market prices, offering flexibility and liquidity. They often come with lower expense ratios than actively managed funds, making them cost-effective for short-term traders and long-term investors.
Why Invest in US ETFs from India?
Investing in US ETFs offers Indian investors numerous benefits, including:
Diversification
Investing in these funds spreads your risk across different economic sectors, geographical regions, and market capitalisations. This diversification can help balance your portfolio, potentially reducing overall risk while capturing growth opportunities across various market segments.
Access to Global Giants
US ETFs provide a straightforward path to invest in global powerhouses like Apple, Amazon, and Google. These companies, which drive innovation and shape global markets, are often underrepresented in Indian portfolios.
Hedge Against Domestic Market Volatility
The US economy often moves independently of emerging markets, counterbalancing your India-focused investments. This international exposure can help smooth out your portfolio’s performance, potentially offering more stable returns.
Cost Efficiency
ETFs typically boast lower expense ratios and management fees compared to mutual funds. This cost advantage stems from their passive management style, where the fund simply tracks an index rather than actively picking stocks. Also, lower fees mean more of your investment goes toward actual market exposure, potentially boosting your long-term returns.
Transparency and Flexibility
US ETFs offer transparency and trading flexibility that many investors find appealing. Most ETFs disclose their holdings daily, allowing you to know exactly what you own. Additionally, ETFs trade like stocks on exchanges, enabling you to purchase or sell shares throughout the trading day at market prices.
How can you invest in US ETFs from India?
US ETFs expose many US assets, from broad market indices to specific sectors or themes. If you’re looking to tap into the potential of US markets through ETFs, here’s a comprehensive guide to get you started.
Direct Investment through US Brokerage Accounts
To invest directly in US ETFs, you must open an account with a US-based broker that caters to international clients. These brokers act as intermediaries, allowing you to buy and sell US-listed ETFs from India. They provide platforms that enable you to execute trades, monitor your investments, and access market research, all while ensuring compliance with relevant regulations.
Steps to Open an Account
Here is a step-by-step guide on how you can open an account with US brokerage accounts:┬а
- Choose a suitable US broker based on your needs and research.
- Complete the online application form with your details.
- Provide identification documents (typically a passport and PAN card).
- Submit proof of address (such as a recent utility bill or bank statement).
- Complete the W-8BEN form for tax purposes (this certifies your non-US status).
- Fund your account via international wire transfer.
- Once approved, set up your trading platform and invest in US ETFs.
Popular US Brokers
Several US brokers have established themselves as reliable options for international investors looking to access US ETFs, including:
- Charles Schwab: Known for its extensive research tools and wide range of ETF offerings.
- TD Ameritrade: Offers a user-friendly platform and competitive pricing for ETF trades.
- Interactive Brokers: Popular for its advanced trading tools and global market access, including a vast selection of US ETFs.
- Fidelity: Provides a robust platform with a strong focus on ETFs and educational resources.
Using Indian Platforms with International Stock Access
AppreciateтАЩs platform is designed with the Indian investor in mind, eliminating many of the complexities traditionally associated with international investing. Here’s how they make the process of buying US ETFs straightforward:
- User-Friendly Interface: The platform boasts an intuitive design, making it easy for investors to navigate and execute trades.
- Streamlined Account Opening: Appreciate handles the paperwork and compliance requirements, significantly reducing the time and effort needed to set up an account for US investing.
- Wide Range of ETFs: Investors can access diverse US-listed ETFs covering various sectors, themes, and investment strategies.
- Fractional Investing: Appreciate allows you to buy fractional shares of ETFs, making it possible to invest in high-priced ETFs with smaller amounts of capital.
- Real-Time Market Data: The platform provides up-to-date market information and ETF performance data to help inform your investment decisions.
List of Top US ETFs
Now, letтАЩs get into the top US ETFs that you can invest in and also understand the criteria for selecting them:
Criteria for Selection
When selecting top US ETFs for Indian investors, performance is a primary factor, emphasising consistent returns over various market cycles. Also, the expense ratio is crucial, as lower fees directly impact long-term returns.
Similarly, assets under management (AUM) indicate the ETF’s popularity and liquidity, with larger AUMs generally offering better trading efficiency. At the same time, historical returns provide insight into the ETF’s track record but are balanced against future growth potential.
Top US ETFs Table
Here’s a curated list of top US ETFs accessible to Indian investors, representing various market sectors and investment strategies:
| ETF Name | Ticker | Price (USD) | Market Cap (Billion USD) | Focus Area |
| SPDR S&P 500 ETF Trust | SPY | 552.56 | 516.19 | Large-Cap US Stocks |
| iShares Core S&P 500 ETF | IVV | 555.60 | 511.56 | Large-Cap US Stocks |
| Vanguard Total Bond Market ETF | BND | 72.90 | 108.77 | US Bonds |
| iShares Russell 1000 Growth ETF | IWF | 363.78 | 100.48 | US Growth Stocks |
| Vanguard FTSE Emerging Markets ETF | VWO | 44.39 | 81.71 | Emerging Markets |
| SPDR Gold Shares | GLD | 225.87 | 66.25 | Gold |
| Vanguard Small-Cap ETF | VB | 228.17 | 58.34 | US Small-Cap Stocks |
| Vanguard Real Estate ETF | VNQ | 88.98 | 34.17 | US Real Estate |
| SPDR S&P Dividend ETF | SDY | 132.87 | 20.44 | Dividend Stocks |
| iShares Biotechnology ETF | IBB | 144.09 | 7.82 | Biotechnology Sector |
Tax Implications for Indian Investors
Indian investors venturing into ETF trading need to navigate a complex tax landscape. Let’s break these tax regulations to make things easier for you:
Tax on Dividends
Dividends from ETFs are taxable in India тАУ for domestic ETFs, the dividend is added to the investor’s income and taxed at their applicable slab rate. Meanwhile, foreign ETF dividends face a 20% tax Deduction at Source (TDS) in India, with any applicable foreign tax potentially offsetting this amount.
Capital Gains Tax
The holding period determines the tax rate for capital gains on ETFs. For instance, gains from ETFs held for less than 12 months are considered short-term and taxed at the investor’s income tax slab rate. Long-term gains (over 12 months) on equity ETFs enjoy a more favourable rate of 10% on gains exceeding тВ╣1 lakh per financial year.
Double Taxation Avoidance Agreement (DTAA)
DTAAs prevent investors from paying taxes twice on the same income in different countries. India has DTAAs with numerous nations, allowing investors to claim credit for taxes paid abroad against their Indian tax liability. This can majorly reduce the overall tax burden on foreign ETF investments.
Risks and Considerations
Investing in US ETFs from India offers diversification benefits, but it’s crucial to understand the associated risks. These factors can significantly impact your returns and should be carefully considered before making investment decisions.
Currency Risk
The value of your US ETF investments fluctuates with the underlying assets and the USD-INR exchange rate. For example, a strengthening rupee can erode your returns, even if the ETF performs well in dollar terms.
Regulatory and Compliance Risks
Indian investors must navigate regulations from both Indian and US authorities. This includes adhering to SEBI (Securities and Exchange Board of India) guidelines on overseas investments and complying with US tax reporting requirements. Failure to meet these obligations can lead to penalties or restrictions on your investment activities.
Market Volatility
US markets can experience significant swings due to economic, political, or global events. These fluctuations may be more pronounced or occur at different times than in Indian markets. Therefore, it is essential to understand the factors driving US market movements and their potential impact on your ETF holdings.
Conclusion
The US stock market, the largest and most liquid in the world offers exposure to companies and sectors that may be underrepresented in the Indian market. By including US ETFs in your investment strategy, you can potentially benefit from the growth of global economic powerhouses while spreading your risk across different geographies. However, remember to approach it with caution and thorough research.
FAQs
What are US ETFs?
US Exchange Traded Funds (ETFs) are investment vehicles traded on US stock exchanges. They track various indices, sectors, commodities, or assets, offering diversified exposure to US markets.
How can I buy US ETFs from India?
Indian investors can purchase US ETFs through international broking accounts offered by Indian brokers or by opening accounts with US-based brokers. The process typically involves completing KYC (Know Your Customer) requirements, funding the account, and placing orders through the broker’s platform.
What are the top US ETFs to invest in from India?
Top US ETFs for Indian investors often include broad market index funds like SPDR S&P 500 ETF (SPY) or Vanguard Total Stock Market ETF (VTI). Sector-specific options like Invesco QQQ Trust (QQQ) for technology exposure or SPDR Gold Shares (GLD) for gold investment are also popular.
Are there any tax implications for investing in US ETFs?
Yes, investing in US ETFs has tax implications for Indian investors. Dividends are subject to withholding tax in the US (typically 25% without tax treaty benefits) and are taxable in India. Capital gains are taxed in India based on the holding period тАУ short-term gains are taxed at your income tax slab rate, while long-term gains (held over 24 months) are taxed at 20% with indexation benefits.
What are the risks of investing in US ETFs?
Investing in US ETFs carries several risks for Indian investors. For example, currency risk arises from fluctuations in the USD-INR exchange rate, which can impact returns. Also, market risk involves potential losses due to US market volatility or economic downturns.
